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Can It Be A Bubble If Many Recognize It As Such?

An article by By Mark Hulbert of MarketWatch titled Can it be a bubble if many recognize it as such? [1] wrote a great article titled “Are bubbles only seen in retrospect?” based on research by

Professor Robert Schiller [2], the author of Irrational Exuberance which predicted the NASDAQ market correction and his recent book Irrational Exuberance: Second Edition which discusses the housing boom.

Professor Robert Schiller [2], who I admire greatly for his insight on the housing market and for whom I got to meet in the green room at the taping of CNBC Town Hall: The Real Estate Boom [Note: WM Clip] [3] basically says that we are not protected from a housing bubble simply because people are worried we are in one.

He defines a bubble as “a market situation in which news of price increases spurs investor enthusiasm which spreads by psychological contagion from person to person, bringing in a larger and larger class of investors, who, despite doubts about fundamental value, are drawn to the investment partly through envy of others’ successes and partly through a gambler’s excitement.”